WASHINGTON,
Sept. 19 - In 1953, the
chief executives of the
country's leading
cigarette companies and
officials from a major
public relations firm
gathered at the Plaza
Hotel in Midtown
Manhattan.
What they
discussed that day and
what happened over the
next 50 years as a
result go to the heart
of the biggest legal
challenge the tobacco
industry has ever faced.
In a nonjury
trial scheduled to start
here on Tuesday in
Federal District Court,
the government is
seeking to strip the
companies -
disgorgement, in legal
terms - of $280 billion
that Justice Department
lawyers say was earned
through fraud. As the
largest civil case ever
prosecuted under the
federal Racketeer
Influenced and
Corruption Organizations
Act, it has the
potential to put the
companies out of
business.
Five years in
preparation, at a cost
to the government of
$135 million, the trial
is scheduled to last at
least six months, with
100 witnesses expected
to testify in person and
200 others through
depositions or testimony
in other trials.
Company lawyers
say the hotel meeting
produced only a research
organization, now
defunct, to study
smoking and health. The
government's lawyers say
the meeting led to a
widespread conspiracy of
deception that remains
in effect, reflecting a
carefully built strategy
to misrepresent the
addictive nature of
cigarettes, lie about
the health risks of
secondhand smoke and
direct marketing efforts
at young people to
sustain a large
population of smokers.
"The
government has provided
extensive evidence to
support our case,"
Peter D. Keisler Jr.,
assistant attorney
general for the civil
division of the Justice
Department, said in a
statement. "We look
forward to presenting it
in court."
The defendant
companies - Philip
Morris USA; its parent,
the Altria Group; the
R.J. Reynolds Tobacco
Company; the Brown &
Williamson Tobacco
Corporation, which
merged over the summer
with Reynolds; the
Lorillard Tobacco
Company, a subsidiary of
the Loews Corporation;
British American
Tobacco; and the Liggett
Group - say that the
government's case is
groundless.
They deny
engaging in a conspiracy
and accuse the
government of distorting
history to drive them
into bankruptcy. They
also say that under the
terms of a 1998
settlement with 46
states that sued to
recover nearly $250
billion for the health
care costs of smoking,
the companies have
already complied with
orders that the
government is seeking in
the lawsuit, like public
disclosure of company
research relating to
smoking and bans on
marketing to children.
William S.
Ohlemeyer, vice
president and associate
general counsel for
Altria, said the judge,
Gladys Kessler, could
decide for the
government only if it
could show that a
pattern of fraud in the
past was evidence of
fraud in the present and
future.
Mr. Ohlemeyer
said that past behavior
was debatable. He said
positions the companies
once held - that smoking
does not cause disease,
for example - "can
be wrong without being
evidence of committing
fraud."
As for the
present and future, he
said, the 1998
settlement created so
much government
oversight that
continuing fraud would
be impossible. "The
court is required to
review the totality of
circumstances," Mr.
Ohlemeyer said in a
conference call with
reporters last week.
"It's difficult for
the government to argue
that the past is a
reasonable predictor of
the future. It ignores a
detailed list of how
cigarettes are sold
today versus the
past."
Filed in 1999,
the case originally
included charges to
recover federal health
care costs due to
smoking. Judge Kessler
dismissed them, leaving
two counts under the
racketeering act. The
Justice Department has
aggressively pursued
those charges despite
several efforts by
Congress to block
financing for the case.
"With
President Bush's
election, the tobacco
industry thought they
were going to have a
friend who would get the
lawsuit dismissed,"
said William V. Corr,
executive director of
the Campaign for
Tobacco-Free Kids.
"Fortunately none
of those efforts
succeeded, and when
terrorism became such a
prominent issue for our
government and the
public, it appears that
the effort to undermine
the lawsuit
diminished."
Full victory
for the government after
appeals would have major
financial consequences
for the companies.
Martin Feldman, an
analyst for Merrill
Lynch who tracks the
tobacco industry,
estimated that the
combined net worth of
the companies, which
account for 85 percent
of the domestic
cigarette market, was
less than $200 billion,
at least $80 billion
less than what the
government is seeking.
But whether the
government has the right
to seek disgorgement
under its theory of the
case is now before the
United States Court of
Appeals for the District
of Columbia Circuit.
That court has agreed to
hear an appeal of Judge
Kessler's decision in
May dismissing the
companies' request that
the disgorgement claim
be thrown out. Oral
arguments are scheduled
for Nov. 17.
If Judge
Kessler's ruling is
overturned, Mr. Feldman
said, "this case
ceases to be
newsworthy."
Justice
Department officials,
who discussed the case
in a background briefing
with reporters under the
promise that their names
not be used, said the
government would try to
show a conspiracy to
sell cigarettes through
intentional
misstatements about
smoking and health, the
addictive nature of
cigarettes, the
manipulation of nicotine
as the addictive
ingredient, the
marketing of low-tar
cigarettes as safer and
the suppression of
evidence that would
adversely affect sales.
The companies'
chief strategy is to
direct the judge's
attention to industry
reforms since 1998.
"The focus of this
case should be on recent
history, the activities
of the defendants today,
and an actual threat of
a specific ongoing or
future violation,"
the companies said in
court documents.
"We intend
to rebut the charges
that fraud was committed
in the past," Mr.
Ohlemeyer said.
"And we're going to
make it very clear to
the judge that no
evidence currently
exists of an intent to
commit fraud in the
future."
To speed the
case along, Judge
Kessler has instructed
each side to conduct
direct examinations of
witnesses outside court
before their
appearances. That means
that when David A.
Kessler, a former
commissioner of the Food
and Drug Administration
who is not related to
the judge, takes the
stand on Thursday as the
first witness, company
lawyers will immediately
cross-examine him about
testimony that was filed
last week.
In that
testimony, Dr. Kessler
recounted efforts by the
agency during his
tenure, 1990 to 1997, to
regulate nicotine as a
drug in the belief that
the cigarette companies
manipulated the level of
nicotine to sustain
addiction.
Citing company
documents, he told the
court that the companies
had known for decades
that nicotine was a drug
but that the agency's
effort at regulation had
been challenged by a
lawsuit from the
industry that reached
the Supreme Court.
In 2000, the
court ruled 5 to 4 for
the industry, saying
that Congress did not
intend the agency to
regulate cigarettes. But
when Dr. Kessler was
asked if any justice
took issue with the
agency's findings, he
said, "No."